Infrastructure sector growth slows down to 19-month low in June

NEW DELHI: India’s infrastructure sector growth slowed to a 19-month low in June, strengthening the case for an interest rate cut to support the economy as inflation fell to record lows.

Reduced output of cement, electricity and coal slowed the pace of expansion of the country’s eight infrastructure sectors in June to 0.4%, data released on Monday showed. The core sector had expanded 4.1% in May and 7% in June last year, indicating that high base of last year has also muted the growth.

The eight infrastructure sectors of coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity constitute 40.27% of the total industrial production. Muted core sector could further dent industrial growth that was placed at 1.7% in May.

The statistics office will release industrial production numbers for June on August 11.

“Overall, the headline number is not showing any significant signs of improvement. Most indicators remain muted,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.

Subdued performance of the core sector combined with retail inflation falling to an all-time low firmed up experts’ expectations of a 25 basis points rate cut by the Monetary Policy Committee when it meets on August 1-2.

Consumer inflation fell to 1.54% in June, the lowest in the current index that started in 2012 and less than 2.18% in May. “Overall, the balance is tilted towards a 25 bps repo rate cut in the next bi-monthly meeting of the MPC. The decision is unlikely to be unanimous,” said Aditi Nayar, principal economist at ICRA. “We expect monetary accommodation, a 25 basis points rate cut,” Bhardwaj said.

As per data released by commerce and industry ministry on Monday, cement production declined 5.8% in June from 0.4% fall in May. Coal output nosedived 6.7% from a 3.2% decline in May. Refinery production declined 0.2%. Crude oil output rose a meagre 0.6% in June and electricity production was up 0.7%. Only natural gas and steel showed a sharp rise in production in June at 6.4% and 5.8%, respectively.

“The considerable dip in core sector growth in June relative to the previous month was driven by an unfavourable base effect that contributed to the worsening contraction in output of coal and cement, and the sharp deterioration in the performance of electricity generation and refinery output,” Nayar said.

An unfavourable base effect and inventory trimming prior to onset of GST may contribute to a contraction in industrial output in June 2017, in stark contrast to the 8.9% expansion in June 2016.

Currently, the Goods and Services Tax (GST) is levied at 12 per cent on payments made for under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale.